The FCC has announced it will adopt a Report and Order and Further Notice of Proposed Rulemaking on Thursday October 27, 2011,  approving significant changes to its Universal Service Fund program and its rules on intercarrier compensation.  In this entry, we project several outcomes for this proceeding.

Broadly speaking, we believe the “ABC Plan” offered by the largest Wireline carriers and the “consensus framework” offered jointly with the rural carrier associations submitting the RLEC Plan will influence most strongly the outcome of the proceeding.  Among those entities most likely to be disappointed will be rural wireless carriers that benefited as exempt telecommunications carriers (“ETCs”) and state regulators.

USF Program Funding.   Based on the Notice of Proposed Rulemaking, the FCC appears committed to maintaining the aggregate USF funding at $4.2 Billion annually, subject to modest increases for inflation.  The suggestion of the Rural LECs that high speed interstate access service be subject to USF assessments likely will not be adopted at this time.

Intercarrier Compensation.  The FCC is expected to adopt a series of steps that, over a number of years and with safeguards, will move interstate switched access, reciprocal compensation and (in conjunction with state regulators) intrastate switched access rates toward a uniform termination rate of $0.0007 per minute.  Verizon, AT&T and Sprint likely will reap substantial cost savings for their Wireless and interexchange Wireline businesses.  In addition, we expect the FCC will require interconnected VoIP service providers to pay terminating access rates or reciprocal compensation, if local, to terminate calls on the PSTN.  Rate increases for heavily discounted residential local Wireline services and increases in subscriber line charges (“SLCs”) are contemplated, as well.

USF Reforms.  The proposals to reform (lower) ETC funding levels, curb phantom traffic abuses, address traffic pumping, and limit recovery of certain expenses and capital investments of rate of return carriers likely will be adopted.  An overarching consideration is the extent to which elements of the current High Cost Support program will be supplanted by the broadband- focused “Connect America Fund.”  Another is which subjects will be “punted” to the Further Notice of Proposed Rulemaking for resolution.

Other major issues include the extent of interim support to rate of return carriers—as intercarrier compensation levels are reduced, monies for the proposed mobility fund, funding levels for near term broadband investment, the revised rules for ETC support, and whether the FCC will implement reverse auctions to grant some USF/CAF funds.   

For those interested, information for online access to the FCC’s October 27 Open Meeting is available at http://www.fcc.gov/live.